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The Oil Crisis Started 30 Years Ago

By Peter Goodchild

30 October, 2006

It is customary to look for the critical year of oil production in absolute terms, but in the year 1970 or thereabouts there was another important "conjunction," to use an astrological metaphor. Global production will peak at some point in the early 21st century; it may have already done so, although the mendacious accounts of remaining reserves make exact dates impossible to determine precisely. Nevertheless, in many senses it is not 2005 or 2010 that is the critical date, but rather the early 1970s.

In the 1950s M. King Hubbert found that as the years went by, U.S. domestic oil production was decreasing, mainly because new discoveries became fewer and smaller. The changes in production could be plotted on a graph, forming the left side of that familiar shape known as a bell curve. Looking at the graph, Hubbert could see that the peak of American oil production would be about 1970; after that, there would be a permanent decline. When he announced this, most people laughed at him. But he was right: after 1970, U.S. oil never recovered.

For thirty years, therefore, the U.S. trade deficit has been heavily effected by dependence on foreign oil. Thomas D. Kraemer, in his report for the U.S. Army, states that "fully one-quarter of the U.S. trade deficit is associated with oil imports." Lauren Poole, a writer and editor for the National Renewable Energy Laboratory in Colorado, adds that "the United States had a trade deficit of $449 billion dollars in 2000; $90.2 billion (approximately 20% of the total) was the value of imported oil. . . . It is projected that petroleum imports will account for 60-70% of the U.S. trade deficit in the next 10 to 20 years."

In terms of family income, the "American dream" started to become less realizable in the 1970s. According to the U.S. Census Bureau, the lowest twenty percent of families had a decline in mean income (in adjusted dollars) between 1979 and 1994: from $13,263 to $11,955. In the meantime, the top five percent of families were watching their incomes skyrocketing. Actually, as Bernstein points out, upper-level incomes do not fully appear in Census Bureau reports: capital gains, executive bonuses, and other perks are somehow not counted as income.

The 1970s were also the start of the era of globalization. By the end of the century, companies such as General Motors, Wal-Mart, Exxon Mobil, Ford, and Daimler Chrysler were richer than entire nations. By the year 2000, of the world's one hundred leading economies, fifty-one were corporations.

The 1970s were the beginning of "wage arbitrage": shopping for cheap labor. International corporations move their factories to where they find the cheapest workers. Unfortunately, if the factory starts doing well, it is inevitable that the workers will start asking for slightly more than starvation wages. Even the government itself might start to become greedy. The workers might succeed, and the country's standard of living might rise. The punishment is simple: the international company packs up and moves to a country where the workers are still "uncorrupted."

Most of the wage arbitrage in the 1970s was due to competition among the developed countries, the OECD countries. It was European workers who first took jobs away from American workers. Now, however, it is the poorest countries who fill this role.

At the same time, this was the beginning of "international poker." One of the most harmful aspects of the global economy is currency speculation, playing the "money market" - also known as the "currency market" or the "financial market" - the practice of exchanging one nation's currency for another, in order to make a profit from the relative increases or decreases in value. Although currency speculation is rarely the immediate cause of financial crises, it is never absent from them.

In 1973 the main industrial nations ended the practice of fixed exchange rates for their currencies; this innovation was supposed to create greater stability among the world's currencies, but actually the opposite happened. George Soros, the billionaire head of Soros Fund Management, describes the swing of exchange rates as more like a wrecking ball than a pendulum. Money-market investors - like investors of any other sort - are generally short-sighted, and they are possessed of herd mentality: when a currency starts to gain value, it then becomes attractive to those investors who have not previously bought it, and the result is an even greater increase in value. The same is true of a currency that starts to fall: as soon as the decline becomes a matter of public knowledge, a panic ensues, everyone tries to get out, and the small loss turns into a major collapse.

All of these problems could have been averted with proper leadership, if that is not begging the question. As E.F. Schumacher points out, the only problem with The Limits to Growth, first published in 1972, is that the authors should have focused more on the loss of petroleum. But all the problems stated in that book have been largely obliterated from human memory by widespread denial of their existence: a gentle but persistent flurry of skepticism, of not-quite-deliberate misinformation, appears on the back pages of newspapers and magazines. The reports were exaggerated, we are told, or the predictions never came true. Or we are reminded obliquely of Adam Smith's "invisible hand": control of the economy is, in some sense, unnatural, and if we would only allow market forces to have free play, all the temporary anomalies would be sorted out. The economy is something like God, in a Deistic sense, and we should have respect for all those gears and pulleys and levers that are beyond our comprehension.

Many economic forces were coming together in the early 1970s: oil decline, income disparity, wage arbitrage, currency speculation. There was a synergy at work: all four problems resulted in the erosion of the U.S. economy. Everything tangible was disappearing: the natural resources, the manufacturing base, the hard currency. The present image of the United States is that of someone waving a credit card that merchants are starting to dislike, knowing that the owner's debts are both "astrological" - to use our earlier metaphor - and "astronomical."


Anderson, Sarah, and John Cavanagh. Top 200: The Rise of Corporate Global Power. Washington, D.C.: Institute for Policy Studies, 2000.

Bernstein, Jared, et al. Pulling Apart: A State-by-State Analysis of Income Trends. Washington, D.C.: Center on Budget and Policy Priorities / Economic Policy Institute, April 2002.

Deffeyes, Kenneth S. Hubbert's Peak: The Impending World Oil Shortage. Princeton: Princeton UP, 2001.

Gever, John, et al. Beyond Oil: The Threat to Food and Fuel in the Coming Decades. Cambridge, Massachusetts: Ballinger, 1986.

Greider, William. One World, Ready or Not: The Manic Logic of Global Capitalism. New York: Simon and Schuster, 1997.

Kraemer, Thomas D. "Addicted to Oil: Strategic Implications of American Oil Policy." On-line at: http://www.strategicstudiesinstitute.

Martin, Hans-Peter, and Harald Schumann. The Global Trap: Civilization & the Assault on Democracy & Prosperity. Trans. Patrick Camiller. Montreal: Black Rose, 1997.

Meadows, Donella H. et al. The Limits to Growth: a Report for the Club of Rome's Project on the Predicament of Mankind. New York: New American Library, 1972.

Poole, Lauren. "Oil: More Costly than You Think." On-line at:

Rifkin, Jeremy. The End of Work: The Decline of the Global Labor Force and the Dawn of the Post-Market Era. New York: Tarcher/Putnam, 1995.

Schumacher, E.F. Small Is Beautiful: Economics as if People Mattered. New York: Harper & Row, 1989.

Soros, George. The Crisis of Global Capitalism. New York: PublicAffairs, 1998.

Thurow, Lester C. The Future of Capitalism: How Today's Economic Forces Shape Tomorrow's World. New York: William Morrow, 1996.

United States Census Bureau. "Historical Income Tables - Families." U.S. Government Printing Office, annual.

Peter Goodchild can be reached at:

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